To be sure that the buyer is receiving good title, the buyer and the lender require that the seller delivers either a current abstract of title, which will list most encumbrances, or a title commitment from a title insurance company. The seller generally pays for this title search.
If a title abstract is delivered, the buyer should have an attorney examine it and write an opinion of title, which will list all encumbrances—which includes liens, easements, and deed restrictions—that are in the title record, and whether the title is good. It is not, however, a guarantee of good title.
Since the seller’s title search is generally done weeks or months before the closing, the buyer should do a second search of the title record right before closing to ensure that no new encumbrances have been added to the record, especially if the seller is financially distressed, such as with a short-sale.
It takes time to record new encumbrances, so the seller is generally required to sign an affidavit of title in which the seller attests that nothing has occurred since the seller’s title search to cloud the title, and that there have been no events that would possibly call into question the seller’s ownership rights or give others an interest in the real estate (such as unpaid property improvements subjecting the property to a mechanic’s lien).
If anything on the affidavit of title proves to be false, then the title insurance company or buyer can sue the seller for damages.
If you have any questions about your current or future real estate transaction, call our team of attorneys at the Kendrick Law Group and Champion Title & Closing to learn more or to obtain one of our customized closing guides.